BILL NUMBER: SB 579 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 22, 1999
AMENDED IN SENATE MAY 3, 1999
INTRODUCED BY Senator Dunn
FEBRUARY 23, 1999
An act to amend Sections 22203, 22251, 22305, 22330, 22467,
and 22551 of the Financial Code, relating to finance lenders.
LEGISLATIVE COUNSEL'S DIGEST
SB 579, as amended, Dunn. Finance lenders.
The California Finance Lenders Law provides for licensing and
regulation by the Commissioner of Corporations of persons engaged in
the business of making consumer or commercial loans. Under these
provisions, a licensed lender generally may not take a deed of trust,
mortgage, or lien upon real property as security for a consumer loan
if the principal amount of the loan is less than $5,000.
This bill would provide that a licensed lender may not take a deed
of trust, mortgage, or lien upon real property as security for a
consumer loan except if the loan is for a bona fide principal amount
of $5,000 or more. This bill would define "bona fide principal
amount" for the purpose of determining whether a consumer or
commercial loan amount exceeds a regulatory ceiling, as specified.
This bill would make other related changes.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 22203 of the Financial Code is amended to read:
22203. "Consumer loan" means a loan, whether secured by either
real or personal property, or both, or unsecured, the proceeds of
which are intended by the borrower for use primarily for personal,
family, or household purposes. For purposes of determining whether a
loan is a consumer loan, the lender may rely on any written
statement of intended purposes signed by the borrower. The statement
may be a separate statement signed by the borrower, or may be
contained in a loan application or other document signed by the
borrower. The lender shall not be required to ascertain that the
proceeds of the loan are used in accordance with the statement of
intended purposes. Nothing in this section shall authorize the taking
of real property as security, except as specified in Section 22330.
SEC. 2. Section 22251 of the Financial Code is amended to read:
22251. Any section that refers to this section does not apply to
any loan of the bona fide principal amount specified in the
regulatory ceiling provision of that section or more if that
provision is not used for the purpose of evading this division. In
determining under Section 22250, 22303, or 22304 or any section that
refers to this section whether a loan is a loan of a bona fide
principal amount of the amount specified in that section or more and
whether the regulatory ceiling provision of that section is used for
the purpose of evading this division, the following principles apply:
(a) If a borrower applies for a loan in a bona fide principal
amount of less than the specified amount and a loan to that borrower
of a bona fide principal amount of the specified amount or more if
made by a licensed finance lender, no adequate economic reason for
the increase in the size of the loan exists, and by prearrangement or
understanding between the borrower and the licensee a substantial
payment is to be made upon the loan with the effect of reducing the
bona fide principal amount of the loan to less than the specified
amount within a short time after the making of the loan other than by
reason of a requirement that the loan be paid in substantially equal
periodical installments, then the loan shall not be deemed to be a
loan of the bona fide principal amount of the specified amount or
more and the regulatory ceiling provisions shall be deemed to be used
for the purpose of evading this division unless the loan complies
with the other provisions of the section that includes the regulatory
ceiling provisions.
(b) If a loan made by a licensed finance lender is in a bona fide
principal amount of the specified amount or more, the fact that the
transaction is in the form of a sale of accounts, chattel paper,
goods, or instruments or a lease of goods, or in the form of an
advance on the purchase price of any of the foregoing, shall not be
deemed to affect the loan or the bona fides of the amount thereof or
to indicate that the regulatory ceiling provisions are used for the
purpose of evading this division.
(c) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the "bona fide principal amount" shall
not be comprised of any charges or any other fees or recompense
specified in Sections 22200, 22201, (including, but not limited
to, amounts paid for insurance of the types specified in Sections
22313 and 22314) 22202, 22305, 22316, 22317, 22318, 22319,
22320, 22320.5, and 22336. This section
Nothing in this subdivision shall be construed to prevent those
specified charges, fees, and recompense that have been earned and
remain unpaid in an existing loan from being considered as part of
the bona fide principal amount of a new loan to refinance that
existing loan, provided the new loan is not made for the purpose of
circumventing a regulatory ceiling provision. This subdivision
is intended to clarify the meaning of "bona fide principal amount"
as used in this division solely for the purpose
purposes of determining whether the loan amount exceeds a
regulatory ceiling, and is not intended to affect the meaning of
"principal" for any other purpose.
SEC. 3. Section 22305 of the Financial Code is amended to read:
22305. In addition to the charges authorized by Section 22303 or
22304, a licensee may contract for and receive an administrative fee,
which shall be fully earned immediately upon making the loan, with
respect to a loan of a bona fide principal amount of not more than
two thousand five hundred dollars ($2,500) at a rate not in excess of
5 percent of the bona fide principal amount
principal amount (exclusive of the administrative fee) or fifty
dollars ($50), whichever is less, and with respect to a loan of a
bona fide principal amount in excess of two thousand five hundred
dollars ($2,500), at an amount not to exceed seventy-five dollars
($75). No administrative fee may be contracted for or received in
connection with the refinancing of a loan unless at least one year
has elapsed since the receipt of a previous administrative fee paid
by the borrower. Only one administrative fee may be contracted for
or received until the loan has been repaid in full. For purposes of
this section, "bona fide principal amount" shall be determined in
accordance with Section 22251.
SEC. 4. Section 22330 of the Financial Code is amended to read:
22330. No licensee shall take a deed of trust, mortgage, or lien
upon real property as security for any loan made under this division,
except any lien as is created by law upon the recording of an
abstract of judgment. This section shall not apply to any loan of a
bona fide principal amount of five thousand dollars ($5,000) or more
as determined in accordance with Section 22251.
SEC. 5. Section 22467 of the Financial Code is amended to
read:
22467. (a) Any section that refers to this section or that is
subject to Section 22251 does not apply to any open-end loan of the
bona fide principal amount specified in the regulatory ceiling
provision of that section or more, or to a duly licensed finance
lender in connection with any such loan if that provision is not used
for the purpose of evading this division.
(b) In determining whether an open-end loan is an open-end loan of
a bona fide principal amount specified in any section in this
division or more and whether the regulatory ceiling provision of that
section is used for the purpose of evading this division, the
open-end loan shall be deemed to be for that amount or more if both
the following criteria are met:
(1) The line of credit is equal to or more than the bona fide
principal amount of the specified amount.
(2) The initial advance was equal to or more than the bona
fide principal amount of the specified amount.
(c) A subsequent advance of money of less than the specified
amount pursuant to the open-end loan agreement between a borrower and
a licensed finance lender shall be deemed to be a loan of a
bona fide principal amount of the specified amount if the
criteria of paragraphs (1) and (2) of subdivision (b) have been met,
even though the actual unpaid balance after the advance or at any
other time is less than the bona fide principal amount of the
specified amount.
(d) Notwithstanding subdivisions (b) and (c), the amount of the
line of credit of an unsecured open-end loan shall be the criterion
to determine whether an unsecured open-end loan is of a bona fide
principal amount or more specified in any section in this division.
(e) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the provisions of subdivision (c) of
Section 22251 shall apply to open-ended loans.
SEC. 6. Section 22551 of the Financial Code is amended to
read:
22551. In determining whether a loan is a loan of a bona fide
principal amount of the specified amount or more, the following
principles shall apply:
(a) If a borrower applies for a loan in a bona fide principal
amount of less than the specified amount and a loan to that borrower
of a bona fide principal amount of the specified amount or more is
made by a licensed finance lender, no adequate economic reason for
the increase in the size of the loan exists, and by prearrangement or
understanding between the borrower and the licensee a substantial
payment is to be made upon the loan with the effect of reducing the
bona fide principal amount of the loan to less than the specified
amount within a short time after the making of the loan other than by
reason of a requirement that the loan be paid in substantially equal
periodical installments, then the loan shall not be deemed to be a
loan of the bona fide principal amount of the specified amount or
more.
(b) A subsequent advance of money of less than a bona fide
principal amount of the specified amount pursuant to a revolving or
open-end loan agreement or similar agreement between a borrower and a
licensed finance lender which gives the borrower the right to draw
upon all or any part of the line of credit, or a loan agreement
providing for the making of advances to the borrower from time to
time up to an aggregate maximum amount which gives the borrower the
right to draw all or any part of the total amount, shall be deemed to
be a loan of a bona fide principal amount of the specified amount or
more if the line of credit or the aggregate maximum amount is a bona
fide principal amount of the specified amount or more and the
initial advance was a bona fide principal amount of the specified
amount or more even though the actual unpaid balance after the
advance or at any other time is less than a bona fide principal
amount of the specified amount.
(c) If a loan made by a licensed finance lender has a bona fide
principal amount of the specified amount or more, the fact that the
transaction is in the form of a sale of accounts, chattel paper,
goods, or instruments, or a lease of goods, or in the form of an
advance on the purchase price of any of the foregoing, shall not be
deemed to affect the bona fides of the amount thereof.
(d) For the purposes of this section, "the specified amount" means
five thousand dollars ($5,000).
(e) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the "bona fide principal amount" shall
not be comprised of any charges or any other fees or recompense
specified in Sections 22500, 22501, and 22601. This section
Nothing in this subdivision shall be construed to
prevent those specified charges, fees, and recompense that have been
earned and remain unpaid in an existing loan from being considered as
part of the bona fide principal amount of a new loan to refinance
that existing loan, provided the new loan is not made for the purpose
of circumventing a regulatory ceiling provision. This subdivision
is intended to define the meaning of "bona fide principal
amount" as used in this division solely for the purposes of
determining whether the loan amount exceeds a regulatory ceiling, and
is not intended to affect the meaning of "principal" for any other
purpose.